When and Where to Invest in 2021

As the vaccine rollout continues, we edge ever closer to "normality". In light of market activity and the budget announcement, we have new predictions for house prices over the next five years, plus data on where is attracting the highest rent yields to help you pinpoint your next buy to let investment.

UK House Price Forecast 
At the start of 2021, lockdown seemed endless, and the "cliff-edge" of the stamp duty holiday loomed in the housing market. The experts predicted that once the 31st March deadline passed, house prices would fall sharply and recover slowly towards the end of the year and into 2022. At the time, Knight Frank's forecast for UK house prices was a 0% change at year-end; not exactly the best news for property investors. 

However, by February, the vaccine rollout is in full flow, and the 'roadmap' announcement certainly injected some much-needed positivity into our lives. This is reflected in the housing market as Rightmove cite an 8% increase of new prospective buyers on the website compared to February 2020; this even before the stamp duty holiday extension. Realistically, these new buyers would not expect to complete before the original deadline, so that can't have been the driving force. After the extension announcement alongside the Budget at the start of March, the experts set about adjusting the forecast! 

Knight Frank has now revised their initial house price prediction of 0% to 5% for the UK. This is fantastic news for all property owners, but if you were eagerly waiting to pick up some bargains after the stamp duty holiday deadline, you will likely be disappointed. Their predictions for the end of 2025 show a cumulative 24% increase; from here, the only way is up, so get in now! 

London House Price Forecast 
It would seem London is a more complex beast to forecast. While the new predictions are more positive then at the start of 2021, now a 4% increase rather than 1%, the lack of international buyers due to COVID continues to impact the Prime Central London (PCL) market. The amended forecast adjusted the 2021 increase in house prices here from 3% to 2%. However, it will recover; house prices in PCL are predicted to rise 7% in 2022, and by a total of 25% by the end of 2025, 7% more than predictions for Greater London. 

So, if you're looking for a long-term investment and aren't too fixated on immediate rental yields (more on this below), now is likely to be a prime opportunity to invest in central London property. 



Source: Knight Frank 

Housing Market Demand and the Stamp Duty Holiday
As I've mentioned, buyer demand ramped up in mid-February; however, as I'm sure some of you are aware, available housing stock did not. Competition for properties is high, which helps push up prices! Rightmove are now seeing more housing stock entering the market, partly due to the traditional spring season but also in response to the extended stamp duty holiday.

Whether or not the Stamp Duty holiday incentive directly impacts your investment plans, the ripple effects on the market will. While the house price increases we saw in the second half of 2020 eventually outstripped the potential £15,000 tax saving in many areas, the deadline extension and prospect of further and sustained house price increases re-sets the thresholds.

For those investing in areas where the average house price exceeds £250,000, the extension doesn't allow for a tremendous amount of time to find, offer, and complete a new purchase. However, for those areas where the average house price is under £250,000, the Stamp Duty holiday extension is essentially six months. Therefore, we're likely to see extra activity in the East and West Midlands, the North East and West and Yorkshire and the Humber as home movers and investors take advantage of the £12,500 saving between July and the 30th September.

Regional Buy to Let Rental Yields
As with many buy to let investors, rental yield is often a primary consideration when deciding your next investment (rather than just the property's long-term investment value). Unsurprisingly, regions like London and the South East, where average property prices are much higher than the national average, don't fare well when it comes to yield. According to new data from Seven Capital, the North West comes out top at 4.69%, with Yorkshire and the Humber and Scotland close behind at 4.56% and 4.54%, respectively. We compared their results with our own client investment data for 2020 and, bar a few per cent here and there, came out with very similar results, with the addition of the North East and the West Midlands in close competition.

Region Average Price Average Rent Rental Yield
North-West £195,976 £766 4.69%
Yorkshire & the Humber £178,441 £677 4.56%
Scotland £181,490 £687 4.54%
Wales £187,158 £673 4.31%
West Midlands £228,092 £733 3.85%
East Midlands £217,502 £689 3.80%
South West £294,596 £910 3.70%
North East £185,546 £536 3.46%
East £340,503 £968 3.41%
South East £390,563 £1,065 3.27%
London £666,160 £1,575 2.83%

 

Source: Seven Capital

Rightmove have also published findings of the most popular places people are looking to buy. Whereas London has historically topped this list (partly due to its population of eight million), Cornwall is now the top location for 2021.

Top Locations in 2021

  • Cornwall
  • London
  • Devon
  • Bristol
  • Glasgow
  • Edinburgh
  • Sheffield
  • York
  • Manchester
  • Dorset

How will this help property investors? If people are looking to buy in these places, chances are there will be a lot of people looking for places to rent here too.

The research also shows a "69% rise in the number of homes sales agreed in rural areas, compared to 49% in urban areas" in the latter half of 2020. It's been widely reported that lockdown has caused people to reconsider housing priorities, with additional living space and access to green spaces becoming primary concerns for many. Whether this sentiment lasts, the further away we get from the pandemic and lockdowns is yet to be seen. As we return to "normal", I would expect these situational trends to fade for many people, especially those returning to offices and long commutes. There's clearly a market for rural rental properties; however, whether this will compete as strongly with the suburban and city markets in the long-term seems unlikely.

What Types of Property do Renters Want in 2021?
While home-movers have been searching for detached five-bedroom properties, renters have turned their attention from two-bedroomed flats to semi-detached two-bedroom houses (Rightmove). Gardens are also a priority. When you're deciding on your next investment property, while you might not want to risk a long-term commitment to something rural, a suburban house with a garden may be a happy medium to appease these priorities and attract renter interest.

What's my key message to buy to let property investors here? 2021 is definitely not as bleak as we first may have thought. I know a lot of my clients were biding their time and waiting for property prices to relax after the stamp duty circus was over, but this no longer going to happen. House prices will rise and buy to let mortgage interest rates aren't going to get much lower; take advantage of this time. If you haven't already, take stock of your finances – have you got savings available for a deposit or can you remortgage and capital raise from an existing property? Remember, you can secure a buy to let mortgage in principle ahead of time to help secure offers. Keep an eye on the estate agent listings, and be ready to pounce on deals!

We can assess your portfolio and help you release available capital, arrange a buy to let mortgage in principle or give you a clear idea of how much you'd be able to borrow. Our consultants are experts at what they do, so do give them a call on 0345 345 6788 or email enquiry@mortgagesforbusiness.co.uk today!

NB: ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

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